Home prices tick up 1.3% in May

It was the second straight monthly increase, according to the Standard & Poor's/Case-Shiller index of 20 U.S. cities, but experts warn it is not likely to last. Los Angeles, San Diego and San Francisco are among the gainers.

Home prices posted strong gains in May as a federal stimulus program boosted sales. But many experts predict the housing market to soften this year as the effects of government support wane.

Prices of previously owned single-family homes rose 1.3% in May over April and 4.6% over May 2009, according to the Standard & Poor's/Case-Shiller index of 20 metropolitan areas, a closely watched measure of prices.

Federal tax credits of up to $8,000 drove sales during the spring; first-time buyers flooded into the real estate market, boosting sales of entry-level homes. The credits expired April 30 but will probably affect prices in coming months as consumers close their deals and sales are recorded.

"The spring is a particularly strong season for the housing market, and then of course you had this boost provided by the government," said Dan Greenhaus, chief economic strategist for Miller Tabak & Co. "But it is still hard to argue that the supply-and-demand fundamentals don't suggest further declines in prices."

Some signs of softening have already emerged. Sales of previously owned U.S. homes fell 5.1% in June, a national trade group said last week, and economists expect further drops when July figures are released. The number of homes taken back by banks through foreclosure is also on the rise as financial institutions clear a backlog of bad loans on their books.

"While May's report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery," said David M. Blitzer, chairman of the index committee at Standard & Poor's. "Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level."

After a gain from March to April, home prices in California cities continued to appreciate on a month-over-month basis, the non-seasonally adjusted index showed, with Los Angeles up 1.7% from April, San Diego up 1.1% and San Francisco up 1.7%.

Other cities that gained in May included Minneapolis with the biggest gain, 2.8%; Atlanta, 2%; Boston, 1.6% and Dallas, 1.5%.

Las Vegas was the only city out of 20 to fall in May, declining 0.5%.

"They just had so much oversupply," said Robert Dye, senior economist for PNC Financial Services Group. "There was a glut of condos built during the height of the housing boom, and they are still digging their way out of the recession."

Adjusted for seasonal variations, the Case-Shiller index was up 0.5%. But Standard & Poor's has warned that the index's adjusted version is no longer a reliable gauge of prices because of distortions caused by the economic crisis.

Meanwhile, the uptick in foreclosures appears to be helping the U.S. rental market.

Landlords are seeing a surge in people renting as homeownership falls and younger renters enter the market, according to MPF Research in Carrollton, Texas. The group said Tuesday that the number of occupied apartments increased by 215,000 in the 64 biggest markets during the first six months of the year. That was almost twice the units added in all of 2009.